At Wells Fargo, Crushing Pressure and Lax Oversight Produced a Scandal

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Misdeeds by branch bankers at Wells Fargo included “simulated funding,” in which workers would move money from legitimate accounts to unauthorized ones to make it look as if the customer had made a deposit, according to a report by a panel of the bank’s board members.CreditCreditSam Hodgson for The New York Times

The red flags were all there, waiting for somebody to stitch them together.

An increasing number of Wells Fargo customers were opening accounts and neglecting to make a deposit. By 2012, only 80 percent of newly opened accounts were being funded, compared with 90 percent in 2005, according to a report that a panel of the bank’s board members issued on Monday after an investigation into the bank’s sham accounts scandal.

Some of those unfunded accounts were ginned up by bankers — without customers’ permission — to goose their sales numbers.

As early as 2004, a manager with Wells Fargo’s internal investigations group noted a sharp increase in “sales gaming cases” — instances in which bankers tinkered with customer accounts, moving money into and out of them, to and from authorized accounts.

Employees “feel they cannot make sales goals without gaming the system,” said the manager, whose name was not provided in the report. “The incentive to cheat is based on the fear of losing their jobs.”

The 2004 memo said sales gaming cases had risen to about 680 in 2004, from 63 in 2000.

One reason that bank executives were willing to sweep things under the rug, the board’s report suggested, was that there was little evidence of harm to customers from the shady practices. But ultimately, the aggregated wrongdoing caught up with the bank, resulting in fines from regulators, a tainted brand and a swath of disgraced and fired executives.

Dozens of midlevel and lower-level employees were faulted by the investigators for covering up the scheme or going along with it, but the two people whom the investigatory committee blamed most squarely were the former chairman and chief executive officer, John G. Stumpf, and the former head of the retail branch network, Carrie L. Tolstedt.

Ms. Tolstedt saw her department as a “sales organization, like department or retail stores, rather than a service-oriented financial institution,” the report said.

Further, Ms. Tolstedt was said to have kept hidden the aggregate number of people who were fired for setting up false accounts. The manager’s report to the board in October 2015 “was widely viewed by directors as having minimized and understated problems,” the panel’s report said.

“We strongly disagree with the report and its attempt to lay blame with Ms. Tolstedt,” Ms. Mainigi said in a written statement. “A full and fair examination of the facts will produce a different conclusion.”

To make the sham accounts look legitimate, Wells Fargo bankers engaged in a practice called simulated funding, the board’s report said. This was an illegal sleight of hand in which “an employee transferred funds from one customer account to another, sometimes unauthorized account (or deposited and withdrew the employee’s own funds) to make it appear that the second account had been ‘funded’ by the customer.”

Because of the way Ms. Tolstedt ran her department, the report said, employee turnover was high. Consequently, many bankers on the front lines were inexperienced and had less incentive to uphold the bank’s values than to meet sales goals.

Turnover in Ms. Tolstedt’s unit reached “at least 30 percent in every period from January 2011 to December 2015,” the report said. For the 12 months ending in October 2015, it was an eye-catching 41 percent.

Ms. Tolstedt was unconcerned, as one witness told the report’s investigators, because, in her view, “there were always people willing to work in Wells Fargo branches.”

Some Wells Fargo branch employees have described health problems they experienced because of the crushing pressure, and the report offered glimpses of how bad things were. Daily and monthly “Motivator” reports were issued, pitting individuals, branches and regions against one another in terms of sales goals.

While few consumers need half a dozen accounts at the same bank, Wells Fargo boasted of striving to sell its customers at least that number. As Senator Elizabeth Warren, Democrat of Massachusetts, noted in her acerbic questioning of Mr. Stumpf at a Banking Committee hearing in September, he bragged in 2014 that Wells Fargo customers had an average of 6.17 accounts per household.

The sales pressure peaked each January, when the bank imposed higher daily targets as part of a Jump Into January campaign. Bankers “were encouraged to make prospect lists of friends and family members” who might open accounts, investigators said. Sometimes, bankers would “sandbag,” or temporarily withhold, accounts opened in December in order to meet their January goals.

In the end, what doomed Wells Fargo was a predictably toxic mix: A combination of aggressive sales goals and lax executive oversight “coalesced and failed dramatically,” the board concluded.